Supporting business in Second Life seriously

This article requires a disclaimer. I am by no means a disinterested party, but a heavilly biased one. My own company, Beta Technologies, has officially launching the Beta Business Park on September 15th, 2009. Obviously you will expect me to support the whole concept 🙂 and not be too skeptical about it.

But I still find it worthwhile to expand a bit on the reason why my company feels this to be important, and how a very long process of maturing an idea, which was validated and corrected by marketing experts and social networking consultants over the years (yes, years!), produced the current result. I hope it might encourage you to rethink about what it means to create a business presence in a virtual world — Second Life or any other — in the years to come.

The first steps

Let’s get back to mid-2006. By then, Second Life was growing like crazy, and all sorts of virtual world wannabees were popping up like mushrooms. The media was excited: Facebook wasn’t yet the huge media-attention-singularity it is today, and there seemed to be a huge gap to fill in terms of technology that bring people together. Virtual worlds were seen as the “missing link”. And even if it wasn’t so, the future in 3D seemed to be quite compelling — it addressed an issue that 2D web pages can’t really convey: the notion of being immersed in an environment with real people.

Yes, we know how the Facebook owners have been painstakingly pushing people to use their real names and real identity and real pictures on their FB profiles — but their motives are not the same. They sell profiling data for advertising, and profiling data from avatars is not seen as important (which is simply neglecting the half-billion US$ economy of digital content sales, but that’s another story; I’m not going to lecture Facebook and Microsoft on what it means to neglect such a market — after all, Microsoft does have a relatively solid presence in Second Life and has experienced it first hand 🙂 ). The notion of “being immersed” is of little concern to Facebook; asynchronous communications on social websites (with the odd IM thrown in) has established itself as the norm on digital, online spaces, so they’re fine in being the leader of that technology. 🙂

But in 2006 things changed a bit when it was clear that virtual worlds like Second Life were questioning that approach. Virtual worlds faithfully represent the notion of presence inside a 3D space. People are “really there” when they interact with each other and with their environment. Things happen in real time. Virtual worlds are a simile of reality, not an abstraction of reality. This lead to new questions: how can this new paradigm be successfully exploited, and, from a corporate point of view, how can it generate new revenue, either directly or indirectly?

In the “wild years” of 2006/7, there was just one solution that everybody came up with: media splash. With the media eager to write about this “brave new world”, it was easy to see that anything that appealed to the media would have a good success of gathering brand awareness. The idea of corporations sponsoring “games” was not new, and that’s why the first attempts of establishing a virtual presence in Second Life were of a game-y nature: even if they were not strtictly “games” in itself, they were supposed at least to be entertaining, and through entertainment, they thought the media would find it attractive enough to write things about it.

Ironically, with the only virtual world with a huge economy of digital content sales, the existing content designers for SL were scared about what they perceived to be “unfair” competition from the Big Corps, with their unlimited funds to develop cheap content for sale in SL. The irony here is that almost none thought to exploit content creation for sale in SL in 2006/7 (thus showing that the “fears” of the SL content creators were largerly unfounded). To my knowledge, “direct competition” came from American Apparel and Bershka and little else; most virtual presences gave away a very limited selection of freebies, but never seriously “competed” in the content creation business.

It was simply not what they were after. They just wished to have brand awareness. And since the funds for raising brand awareness usually come from the bottomless coffers of their marketing departments, the years of 2006/7 have seen million-US$-virtual presences being built for a while.

Which quickly disappeared after the media lost interest (the journalists are fickle!) and, to a degree, the media, probably with some help of some frustrated CEOs and marketing managers, tried to label Second Life as “worthless” and “soon to be a forgotten technology”.

Nothing could be so far away from the truth. Still, writing an article on “the end of Second Life” is a certain way for a journalist to earn a few US$ from their editors. They can even re-use the same articles over and over again; Second Life, in several cases, has outlived those journalists or the media they wrote for 🙂

However, it was also clear that brand awareness only worked to a degree. With multi-million budgets to do things in Second Life, the return on investment was low if you just “merely” got a “few thousands” to visit your virtual presence. Now you should understand that corporations do not only invest “millions” in ads and TV spots. They organise a lot of events — where sometimes their audience is “just hundreds” or “thousands” and not “millions”. Usually, a marketing department will be quite happy to do a product launch with just 50 people in the audience, and spend a few dozens of thousands of dollars in it, if they know in advance that those 50 people are either potential clients, partners, opinion makers, journalists, or possibly VIPs that might give interviews to journalists. These kinds of events happen all over the place; this weekend, for instance, I saw that Mercedes Benz promoted a fashion show in Miami for beachwear. What have cars and bikins have to do with each other? Well, the hundreds that attended the show are potential buyers of Mercedes cars 🙂 And a journalist covering the event for a fashion magazine or fashion network channel will show the big Mercedes logo — free advertising on TV!

So it’s not uncommon — I would say, it’s even more common! — that this “small-scale”, more personal form of advertising, through sponsoring of selected events (or creating their own “product launch” event), is actually more widespread and gets a proper return on investment, in some cases better than when using massive mainstream advertising. That’s why these things are so popular. Targeted marketing usually gets more results for the same amount of money invested, and the number of attendants is less important than the ratio of expected return. Put in other words: if Mercedes invested, say, US$20,000 on a show that attracted a hundred people, but one of them buys a new Mercedes car, that’s a good return that will have covered the costs (any “casual” showing of Mercedes’ logo on the streets — saving the costs of leasing a billboard — or on the TV coverage of the event — saving the costs of a TV ad — is just extra brand awareness for free, which is quite cool). If they have to spend US$20 million to do a TV ad on a specialised channel (one mostly seen by the “A” type of consumers) that might have 100,000 viewers, but none buys a car, it was a bad investment. In terms of brand awareness, the reach might have extended to 100,000 viewers, which is good, at a price of US$200/viewer. But no sales. For the same ratio (US$200/attendant) you might sponsor a much smaller event and get a single sale that would pay for it. Also, it’s far easier to measure direct effectiveness of the result of a small event (imagine you hand out a card that will give you a 1% discount if you buy a car; that way, you know if someone comes with that card to the car stand, it was someone who attended that fashion event) than on the mainstream media (it’s far harder to track down who viewed an ad on TV or on a magazine and came to your stand to buy a car).

Surprisingly, very few companies are exploring that area in Second Life, which is ideal to get in touch with a geographically distributed population (instead of setting up small events on several different cities, you just need to set up a single event in SL, and people from all over the world might come to see what you’re doing). My company developed something like that for a software development company in Florida — you could buy their product via Second Life and get a discount. They made enough sales to keep their virtual presence going for several years, although they weren’t really considering SL as a “major retail channel”, until the financial crisis finally forced them to cut all marketing costs and they had to leave SL — at least temporarily. That’s normal: in real life, sponsoring events like this are made in a specific timeframe, and this is something that SL residents have a huge difficulty to grasp, since on the Web, companies rarely abandon their websites. Once a company is in SL, it is expected that it stays in SL forever, but that’s simply not how the corporate world works. Products have a limited timeframe of existence (just look at fashion, beauty, or TV shows). Their promotion only makes sense during their existence; when the product line comes to an end, its promotion ceases.

On the other hand, Second Life enables quite a different style of interaction — customer feedback, getting in touch with partners and potential clients. It allows for social networking: establishing new business relationships, either with other corporations, possible partners, or potential individual consumers. This is the little explored side of virtual presences in Second Life, but you can see from M Linden’s blog posts that this is pretty much what Linden Lab is now trying to address.